COLUMN-Faster, deeper, more power in N. American rig market:Kemp

LONDON Dec 10 (Reuters) - North American oil and gas
production is on the verge of another revolution as older
drilling rigs are replaced by equipment that can drill the same
well in half the time and bore much longer horizontal sections
underground.

The number of land-based rigs drilling for oil and gas in
the United States has fallen 12 percent since November 2011,
according to oilfield services company Baker Hughes
International.

The drilling of new wells is sensitive to forecast oil and
gas prices. Slumping gas prices over the past year have resulted
in a sharp drop in the number of rigs employed. Some rigs have
been shifted to oil or liquid-rich "wet" gas plays, while more
than 200 mostly older ones have been idled over the past 12
months.

In a sign of the coming industry-wide rationalisation,
Precision Drilling, one of the largest drillers in North
America, announced on Monday it was decommissioning 42 of its
older tier-3 drilling rigs and another 10 tier-2 machines. The
company plans to exit the tier-3 contract drilling market
altogether as it refocuses its operations on the more profitable
tier 1 and 2 markets.

Crude rig counts tell only half the story, however. New
technology and the development of standardised "assembly-line"
or "factory" drilling practices mean the industry can now drill
more wells faster and with fewer machines - slashing costs and
lowering the breakeven price for U.S. and Canadian producers.

Most oil analysts still focus exclusively on rig counts, but
counts are misleading when the rig fleet is changing rapidly.
Relying on these raw figures has caused many oil analysts to
underestimate the total amount of exploration and production,
while focussing on day rates for rig hire has caused them to
overstate costs.

Just as the perfection of long-known but expensive hydraulic
fracturing techniques in the mid-2000s paved the way for the
first shale gas (and then oil) revolution, improvements in
drilling efficiency and better reservoir management will open
the way for a second revolution - provided that oil and gas
prices remain high enough to incentivise the investment.
Continued...